@article {Martinjoi.2019.1.075,
author = {Martin, Kenneth J. and Sankaran, Harikumar},
title = {Using the Black{\textendash}Litterman Model: A View on Opinions},
elocation-id = {joi.2019.1.075},
year = {2019},
doi = {10.3905/joi.2019.1.075},
publisher = {Institutional Investor Journals Umbrella},
abstract = {We provide evidence on using the Black-Litterman (1991, 1992) asset allocation model and show that if investors form even partially correct opinions on small-cap and emerging market stocks, portfolio performance would have improved vis-{\`a}-vis no opinions. For the period 2006-2011, we show that the Black-Litterman expected returns for large-cap US stocks, the EAFE index, and the Bloomberg Barclays US aggregate bond index are highly correlated with future five-year returns in each of those assets. Expected returns on US small-cap and emerging market stocks have a low correlation with future returns. If an opinion was only partially correct on the latter assets, the resulting portfolios would have outperformed a market-cap-weighted benchmark portfolio. Thus, we conclude that investors may benefit more from investing resources in forming opinions on the future direction of small-cap and emerging market stocks relative to large-cap stocks.},
issn = {1068-0896},
URL = {https://joi.iijournals.com/content/early/2019/01/08/joi.2019.1.075},
eprint = {https://joi.iijournals.com/content/early/2019/01/08/joi.2019.1.075.full.pdf},
journal = {The Journal of Investing}
}